Old vs New Tax Regime 2026: What the break-even point is and how it determines your tax choice

Old vs New Tax Regime 2026: With salaried employees in all organisations being asked to make an official decision regarding their preference for either the old or the new tax regime, there is uncertainty over which choice would be advantageous. However, tax experts have brought forth an important term which makes the choice clear – ‘the break-even point’, which helps determine at what point one system turns out to be more profitable than the other, based on income structure and deductions.

Speaking with Zee Business, tax experts Sunil Garg and Vivek Jalan explained that the choice between regimes is not universal and depends entirely on how much deduction a taxpayer can actually claim versus the simplified structure of the new tax regime.

New vs Old Tax Regime: The core difference

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Sunil Garg explained that FY 2025–26 (AY 2026–27) is a significant year as many employees are now defaulted into the new tax regime unless they actively opt for the old one.

He noted:

• The old tax regime allows multiple deductions such as HRA, Section 80C, 80D, home loan interest, education loans, and other exemptions.
• The new tax regime offers simplified taxation with fewer deductions but more relaxed income slabs.

He further highlighted that salaried taxpayers can now switch regimes while filing returns in many cases, making it even more important to evaluate both options carefully.

What is the Break-Even Point?

The break-even point refers to the level of total deductions a taxpayer must claim so that the old tax regime becomes more beneficial than the new tax regime.

Experts explained it in simple terms:

• If deductions are low, the new regime is better due to simplicity and lower compliance.
• If deductions are high and properly utilised, the old regime provides higher tax savings.

A small structural difference between regimes at lower income levels exists, but the real decision depends on how deductions scale with income.

How the break-even works in practice?

Tax experts explained the practical work of break-even point through the following scenarios:

Rs 15 lakh salary scenario

• At a Rs 15 lakh salary level, HRA plays a major role in reducing taxable income.
• HRA alone can reduce taxable income significantly (in some cases around Rs 4 lakh depending on rent and location).
• Along with deductions under 80C, 80D, and other exemptions, the old regime can become competitive.
• At this level, tax savings depend heavily on how well deductions are structured.

Rs 25 lakh salary scenario

Vivek Jalan explained a clearer break-even benchmark for higher incomes:

For an individual earning around 25 lakhs, the old regime becomes better in case the deductions are around 6.87 lakhs or more.

In case the deductions are less than this figure, then;

The new regime will be more advantageous and easier

Rs 40 lakh salary scenario

In case of salary in higher brackets, the break-even figure goes further up and the old regime will be better when:

The deductions fall in the range of 8 lakhs to 10 lakhs or above

This includes:

• HRA
• Investments under Section 80C and 80D
• Home loan interest
• Education loans and other exemptions

Thumb rule for break-even

According to Garg, in case the total deductions are more than about 7 lakhs, then the old regime will become more beneficial

This acts as a simplified reference point before detailed salary-wise calculation.

Who gets more benefit under the Old Tax Regime?

Experts feel that the old regime is more suited for:

• Salaried individuals with high HRA (especially in metro cities)
• Taxpayers having home loans
• People who invest actively under Sections 80C & 80D
• Those who have education loans and exemptions

In such cases, total deductions can often cross the break-even threshold, making the old regime more tax-efficient.

When the New Tax Regime works better?

According to Jalan, the new tax regime works better for those who:

• Have no substantial deductions
• Want a simpler tax structure without any paperwork
• Are not entitled to HRA or other investment exemptions

These people will likely enjoy similar or more favourable tax treatment under the new system with far fewer complications.

Employer contributions and additional factors

Experts also highlighted that employer contributions can influence the break-even calculation:

• Employer contributions to NPS (National Pension System) can significantly reduce taxable income.
• Other benefits such as car perquisites for higher-income employees can also affect final tax liability.

These factors must be included while evaluating which regime is more beneficial.

Compliance and scrutiny risks

Garg cautioned taxpayers to avoid incorrect or unsupported claims:

• Fake deductions can lead to tax scrutiny and notices
• Proper documentation is required for HRA, insurance, donations, and other exemptions
• The tax system now has strong verification mechanisms

Tax experts concluded that the choice between old and new tax regimes depends entirely on individual financial structure.

• The new tax regime offers simplicity and fewer compliance requirements.
• The old tax regime offers higher savings potential but requires careful planning and proper documentation.

In the end, the break-even point at which the deduction exceeds the advantages of the new tax system becomes the deciding factor for every salaried individual in 2026.